Glass Delivery Specialist

The Impact of Board Diversity

Diversity in boardrooms has become a hot topic. Shareholders and institutional investors are increasing the pressure on companies to increase their diversity. A diverse board can prove that a company is growing, which can aid in improving the image of the brand. It can also enhance company culture by creating more inclusive, equal environment.

However, the evidence on impact of diversity on boards is mixed. Many studies have shown positive effects, but others have demonstrated different effects. Diversity in gender is, for instance, associated with the performance of a company when it comes to accounting returns, but not market returns. It has also been found that functional diversity, such as a mix of educational, industry/sector-specific and role-specific experience, improves board effectiveness by better managing external dependencies and challenging managerial assumptions.

In addition it has been observed that minorities or tokens in the group tend to self-censor by not communicating their beliefs and opinions that are contrary to those of the majority of the group. This can hinder cognitive variety from reaping the full benefits. The age of a director can affect the way they make decisions in the boardroom. Managers who are older are less likely to embrace innovative ideas and innovations than younger managers. This has been referred to as the “selection bias” effect. This is the reason why it’s important to include young directors in the board, and not just pay attention to gender diversity.

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